Japan feels the wave from China

Market Development: The Japanese market was volatile during July, before eventually declining towards the end of the month. The Chinese Government’s sudden restriction on education support businesses in their own country surprised investors and weighed down the overall market.

Monthly Fund Commentary
18 Aug 2021

Market Development: The Japanese market was volatile during July, before eventually declining towards the end of the month. The Chinese Government’s sudden restriction on education support businesses in their own country surprised investors and weighed down the overall market.

Global markets eventually recovered toward the end of the month, but investor anxiety increased regarding the Chinese Government and their policies. Investors sold out of the equity markets as valuations became more appealing.

The Q2 period earnings of Japanese companies were in line with market expectations, but they did not exceed expectations. This was another reason why small caps, whose valuations are relatively high, were sold off heavily during the month.

Market Outlook

The Chinese Government’s sudden restriction on the education support industry in China surprised global investors. The market reacted negatively to the restrictions, and related ADR stocks in the US market declined sharply. The US market was negatively impacted on the back of the news which eventually affected global markets also.

Investors are losing confidence in Xi Jinping and the Chinese Government, which is only focusing on maintaining the Communist Party system and personnel at the next National Congress of the Chinese Communist Party in 2022. The Chinese Government’s attitude may not be understood by global capitalist economies in the free economic zone, but we have to prepare for more to come, due to the forthcoming Congress in 2022.

We will continue to focus on companies that we feel can produce decent profits under a difficult macro environment. Earnings of our invested companies are strong to date, so we will maintain the current portfolio.

Portfolio Development

The share price of JTower (4485) declined for a while, but we remain invested in the company. Their mobile infrastructure sharing business will be a welcomed cost reducer for four major telecommunication service providers.

We believe that the increasing demand for Electric Vehicles (EVs), which have a heavier weight compared to a regular motor vehicle due to its battery, will accelerate the usage of tyres, so we expect the earnings of Toyo Tires (5105) to continue to expand in the near future.

As always, we invite investors, or prospective investors in the Strategic Japan Opportunities Fund to discuss the opportunities with the investment team if they would like to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact Adam or visit the Fund Page >

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com

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The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 10/08/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.